China Bends on Wireless Encryption, Continues Chip Tax - Page 2

One of the primary motivations for the Chinese developing their own technology standards is to avoid potentially expensive royalty fees for licensing western technology.
Several sources in China said that while the Chinese government is developing a variety of homegrown technology standards, none is ready for global licensing. Neither WAPI nor TD-SCDMA (Time Division Synchronous Code Division Multiple Access) is well-developed, and both still face considerable technical obstacles. There is no question the Chinese government is going to continue developing its own standards, but considerable effort and fairness will have to arrive before U.S. and other international technology companies comply with any new technical security rules.

The Chinese are very sensitive to being perceived as backing down to international pressure. As part of their wider U.S.-China trade agreement, Beijing got the Bush administration to reconsider its current ban on U.S. exports to China of high-tech products that could potentially have military applications.

China was also successful in avoiding concessions on the issue of its continued imposition of a 17 percent VAT (value-added tax) on imported semiconductors. U.S. companies exported close to $2 billion in chips to China in 2003, based on statistics from the Office of the U.S. Trade Representative. The sale of those chips in China cost U.S. companies $344 million in Chinese-imposed duties.
Prior to the U.S.-China trade agreement, the Bush administration filed a formal fair-treatment complaint against China to the WTO (World Trade Organization) on the chip VAT issue. The chip tax amounts to a rebate for Chinese companies, say U.S. chip companies and the SIA (Semiconductor Industry Association). It is unclear if and when the WTO will issue a ruling on this point.
The U.S. has also been pressing China to stem the rampant tide of software, music and movie piracy of CDs and DVDs. As part of its trade deal with the United States, China has said it will begin to impose more stringent penalties for intellectual property piracy by the end of 2004. However, an informal survey of several stores and a number of underground markets in Beijing reveals it is possible to procure DVDs and CDs for $1 or $2, without any Chinese government involvement.
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